CAR rental group Hertz yesterday agreed to buy smaller rival Dollar Thrifty for about $1.2bn in a deal that will make it the second-biggest US car rental company.
Shares of Hertz, which also raised its earnings and revenue outlooks for 2010, rose as much as 18 per cent to touch a two-year high after the news hit the market. Shares of rival Avis Budget Group also jumped.
The deal marks a significant consolidation for the car rental industry, which is starting to recover from the global economic downturn, helped by a pickup in travel and the used car market.
“This is a very important and strategic transaction for us in that it fills a gap in our product portfolio with a strong mid-tier value offering,” Hertz chief executive Mark Frissora said on a conference call with analysts.
Hertz said the combined company would have an overall US market share of 23 per cent. It trails privately held Enterprise Rent A Car which has a market share of 53 per cent. Avis Budget has a share of 20 per cent.
“The Hertz brand will continue to be a commercial high-end travel brand, while Dollar Thrifty and [Hertz’s] Advantage brands will continue to be used to penetrate leisure, summer, spring-break vacation travel,” analyst John Healy of Northcoast Research said.
The cash-and-stock offer of $41 per share represents a 5.5 per cent premium to Dollar Thrifty’s Friday close of $38.85. It values the company at $1.17bn, based on 28.6m shares outstanding as of 24 February. Dollar Thrifty, whose primary market is the US, rents cars under the Dollar Rent A Car and Thrifty Car Rental brands.
Hertz chief executive Frissora said the deal would increase the company's presence in the non-business segment in international markets including Europe.
City A.M. Reporter